For many divorcing couples, dealing with financial obligations goes hand in hand with the separation itself. With the loss of a combined income, bankruptcy for one or both divorcing spouses may be an unwelcome but necessary reality. While divorce proceedings and bankruptcy proceedings are two different legal processes, understanding how they may affect each other is essential to making informed decisions. Bankruptcy will affect how your property is divided, how the debt is allocated, and–with time–your financial recovery. If you are facing both divorce and bankruptcy in Oklahoma, a coordinated strategy between your divorce attorney and your bankruptcy attorney may ensure the best financial outcome.

Chapter 7 vs. Chapter 13 in Divorce

The two main types of bankruptcy for individuals are known as Chapter 7 and Chapter 13. To qualify for a Chapter 7 bankruptcy, the filer must have income and assets below a certain threshold. The process tends to be much faster than a Chapter 13 proceeding; however, the outcome tends to be more severe in measure. For example, you typically must be current with house or car payments in order to keep these assets after filing for bankruptcy; you may lose some of your property; your ex-spouse may still potentially come after you for joint debts; and there is no remediation available if you are behind on alimony or child support payments. On the other hand, a Chapter 13 proceeding typically takes several years but the filer has a lot more control over the process.

For example, the filing stops repossession of vehicles or foreclosure on mortgaged property; you keep your assets; you have better protections from your ex-spouse for joint debts, and you can catch up over time for alimony or child support payments that are in arrears. Although each situation is unique and must be reviewed, generally speaking, a Chapter 7 bankruptcy may be the better option if the divorce is nearly over and you have fewer assets and debt to divide and a Chapter 13 bankruptcy may be the better choice if the divorce is ongoing, you are behind on obligations, or the assets are more complex.

When to File for Bankruptcy During a Divorce

Oklahoma bankruptcy law allows married couples to file for bankruptcy together or separately. This choice, as well as the timing of the filing can have a significant impact on the divorce outcome. Divorcing spouses who are able to work together, despite the divorce, may both benefit by filing for bankruptcy jointly. By eliminating shared debts before the property division and preserving exempt assets through well-timed filings, each spouse can start their new and separate chapter on the best financial footing possible. In addition, filing for bankruptcy jointly can reduce costs with only one filing fee and shared legal representation. Further, with a more complex financial situation, filing together for bankruptcy may offer better financial protections for both spouses.

But not every couple can or should file jointly. If a Chapter 7 filing makes better sense for your situation but your income or assets exceed the threshold, you may want to consider filing for bankruptcy after the divorce if you can then qualify with lower income and assets. And, of course, if the divorce is contentious, cooperating through a joint bankruptcy filing before the divorce is not realistic. Keep in mind that if only your spouse files for bankruptcy, you may still be affected. Joint debts, such as a mortgage or car loan, remain in place. Creditors may still pursue you for payment. In this case, keeping your divorce attorney informed and up-to-date is essential.

Dividing Property and Debt During Bankruptcy

When it comes to divorce, Oklahoma’s equitable distribution laws require a fair split of marital property. “Fair” does not necessarily mean equal. While the process of determining what is fair is not a simple one, adding bankruptcy to the equation adds another layer of complexity. This is because when you file for bankruptcy, the bankruptcy court takes control of your assets. Until the bankruptcy court decides which exemptions apply to your property as well as what assets must be sold to satisfy creditors, the family court cannot finalize the division of property in the divorce decree. This extends the already lengthy time to finalize a divorce in Oklahoma.

Divorce Obligations That Survive Bankruptcy

Although bankruptcy offers filers a fresh start, it is important to note that the process is not necessarily a complete do-over. By law, some obligations–including divorce obligations–survive the bankruptcy process. For example, child support and alimony cannot be discharged under any chapter of bankruptcy. These obligations remain fully enforceable even after bankruptcy. Further, bankruptcy does not eliminate the obligation to pay ongoing support after filing.

Property settlements made under the divorce decree may or may not be discharged in bankruptcy depending on whether you have filed under Chapter 7 or Chapter 13. Your divorce attorney should coordinate with your bankruptcy lawyer to ensure your obligations are correctly classified as support or repayment plans to protect your finances.

Rebuilding Your Credit After Bankruptcy

While divorce does not directly impact your credit score, filing for bankruptcy has serious consequences. Namely, it will remain on your credit report for seven years (Chapter 13) to ten years (Chapter 7). That said, filing for bankruptcy stops ongoing negative credit reporting by your creditors and provides you with a starting point for rebuilding your credit. You can positively affect your credit score by maintaining regular employment, obtaining and using secured credit cards, and paying your bills on time.

Navigating Bankruptcy and Divorce in Oklahoma

As difficult as divorce and bankruptcy are, both processes provide the opportunity to start over. With skilled legal counsel, you can make a clean break from your past and prepare for a secure future. Our attorneys at Titus Hillis Reynolds Love guide Oklahomans through combined divorce and bankruptcy proceedings with dignity and discretion. If you are considering filing for bankruptcy, divorce, or both, our team can help you understand your options so you can make the best decision for your specific circumstances. Contact us today to schedule a confidential consultation and take the first step toward rebuilding your new and stable future.